AeroVironment’s Meteoric Rise: Can the Rally Hold?

Shares of the American defense contractor AeroVironment have staged a spectacular surge in recent trading sessions. Fueled by a deluge of new military contracts and favorable sector sentiment, the stock's value has appreciated by more than half in a single week. This dramatic ascent, however, prompts significant questions regarding its sustainability and the underlying fundamentals.

The recent price action has propelled AeroVironment's valuation to unprecedented levels. The equity currently trades at a Price-to-Sales multiple exceeding 13, a significant premium compared to the industry average of approximately 3.7. This metric underscores the substantial growth expectations priced into the stock by the market.

These lofty expectations currently contrast with the company's profitability picture. For its most recent quarter, AeroVironment reported a net loss of $17.1 million, despite posting impressive revenue growth of over 150% to $472.5 million. Investors are thus paying a considerable premium for future potential, as current earnings have not kept pace with top-line expansion. This divergence has already led some institutional investors, including the Louisiana State Pension Fund, to realize gains and reduce their holdings.

The Catalysts: Military Contracts and Sector Tailwinds

The immediate catalyst for the rally is a series of substantial orders from the U.S. Department of Defense. Last week, the company secured contracts with a combined value of $887 million. The vast majority of this sum, $874 million, is allocated to unmanned systems. A strategically notable, separate award of $13.2 million is for the new P550 drone system, which is being developed for the U.S. Army's long-range reconnaissance program.

Should investors sell immediately? Or is it worth buying AeroVironment?

Beyond these company-specific wins, a broader macroeconomic development provided additional momentum. Reports outlining a proposed U.S. defense budget of $1.5 trillion for the 2027 fiscal year buoyed the entire aerospace and defense sector, giving AeroVironment shares an extra boost.

Market Perspective: A Pause or Continued Ascent?

The analyst community maintains a fundamentally optimistic view but has grown cautious following the rapid revaluation. The average price target sits near $367, aligning closely with the current trading level around $365. Piper Sandler remains more bullish, with a target of $391, suggesting roughly 7% further upside.

From a technical standpoint, the sheer velocity of the advance—a 51% gain in just six trading days—indicates potentially overbought conditions. This often precedes a period of consolidation or a corrective pullback. Market participants will now closely monitor the company's upcoming quarterly results in April 2026 for evidence that these multi-million dollar contracts are translating into sustained bottom-line improvement. The long-term outlook for the tactical drone market remains robust, with projections estimating it will grow to $7.86 billion by 2030.